In its basic form, a Letter of Credit (or LC) is a document produced by a financial institution delivered to another financial institution that guarantees an Importer’s payment to an Exporter will be received on time and for the correct amount. The Importer is required to send payment to the issuing institution who then transfers funds to the Exporter’s advising institution or directly to the Exporter. In the end, the Exporter will receive payment as long as the transportation of the goods is compliant with the LC’s terms and conditions. Letters of Credit are most often used between Banks that are in different countries for international trade. Trade FinanceTrade Finance assists with trade cycle funding gaps and allows businesses to obtain goods from a Supplier with cash upfront. When a Supplier abroad is exporting goods to a business partner elsewhere, they will want assurance that payment will be received in a timely fashion. Instead of the business owner paying for goods right away, the institution handling their import financing will instead produce a Letter of Credit that will be presented to the Supplier or their finance company. As previously mentioned, the Letter of Credit serves as a guarantee of payment when the conditions of the initial Supplier agreement are met. Upon receipt of goods, payment is made to the Supplier or their finance company. This arrangement can be used for a one-time purchase of supplies or continuingly if there will be a lasting business relationship between the Importer and the Exporter. Reasons to Use an LC with Trade FinanceThere are a few key reasons why an LC should be used with Trade Finance.
Trade Finance Steps
Overview of StepsIn summary, an overview of the steps are as follows:
Need funding for trade? Capstone is here to help: Let us work with you today to help you find the best solution to your cash needs without taking on more debt. Whether you are facing an immediate one-time need for cash to secure a contract, or you require a long-term solution to cash flow, contact our skilled team of representatives today and let us work with you to find the best options for your funding needs.
The post Letters of Credit in Trade Finance appeared first on Capstone Capital Group. via Tumblr Letters of Credit in Trade Finance
0 Comments
Leave a Reply. |
Capstone Capital Group, LLC
Capstone seeks to fund under-capitalized, competent businesses to sustain sales growth, preserve capital and ensure business goals are realized. |